These Nigerian Banks have biggest exposure to FX liabilities

Domiciliary deposits in the Nigerian Banking industry have increased significantly to about 26 percent of total deposits from an average of 15 percent in 2008.

With the news that Nigerian banks have started to reject dollar deposits due to the problems inherent in managing  FX positions, we decided to dig into banks annual reports and see which ones are sitting on the most FX as percentage of deposits.

In Zenith Bank domiciliary accounts made up 22.5 percent of total deposits and in First Bank they were equivalent to 20 percent of deposits, at the end of 2014.

Guaranty Trust Banks foreign currency deposits grew by 34.08 percent in 2014, while Access Banks FX deposits increased by 24 percent, according to data from the banks website.

FX liability Risks

Nigeria’s big banks all have significant exposure to dollar deposits which rose last year partly as a result of devaluation of the naira.

The lenders are however facing elevated risks from their high exposure to foreign currency deposits.

Banks with FX deposits are exposed by a weakening naira, and poor or misunderstood ability to manage or properly hedge FX liquidity.

Nigerian banks may also not be properly matching FX liabilities with assets.

Ratings agency Standard and Poor’s (S & P) estimates that about 20 percent of banks current FX loans are not linked to dollar receivables.

The Central Bank of Nigeria seeing the risk in banks exposure to FX introduced a range of measures to manage this exposure in October 2014,including limiting foreign-currency borrowing to 75 percent of shareholders’ equity and introducing a new 20 percent net open position cap on overall foreign currency assets and liabilities.